Federal Reserve System, Interest Rates, Inflation, Central Banks, Monetary Policy, Federal Funds Rate
The upcoming FOMC meeting scheduled for January 30–31, 2024, holds significance for traders, with key dates marked on their calendars. Initial market expectations were for the Fed to maintain interest rates at 5.25–5.50%. However, signals from the Federal Open Market Committee (FOMC) indicate a likelihood of multiple rate cuts throughout 2024, driven by weakening inflation and a slowing economy. Markets provides insights into what to anticipate.
Key Points:
- The FOMC kept interest rates steady in its December 2023 meeting and hinted at potential rate cuts in the coming year.
- On the eve of the upcoming FOMC meeting, three Federal Reserve representatives expressed support for maintaining current interest rates.
- Market projections indicate a 48% probability of a rate cut at the March meeting, but current expectations are for rates to remain unchanged in January.
- The USD’s performance against major currencies is anticipated to be influenced by Fed Chairman Jerome Powell’s signals; a hint at a rate cut in March may lead to USD weakening.
At the last FOMC meeting held on 17–18 December 2023, interest rates remained unchanged at 5.25%–5.50%. The quarterly released Summary of Economic Projections backed the December decision. According to the published data for 2024, GDP growth will move from 1.5% to 1.4%, unemployment will remain unchanged at 4.1%, and PCE inflation will decline from 2.5% to 2.4%. Based on this, FOMC members voted to change the key rate, which was reflected in the Fed’s dot plot. For 2024, the Fed’s median target rate is now 4.6% vs. 5.1% in June—down 0.50 basis points.
On the eve of the next FOMC meeting on 30–31 January 2024, as many as three Fed representatives expressed their opinion. They made it clear that they have not yet seen evidence to start easing monetary policy:
- San Francisco Fed President Mary Daly said during her Friday interview on Fox Business: ‘Neither unemployment nor inflation makes me think that an adjustment is necessary.’
- Atlanta Fed President Raphael Bostic still anticipates the first rate cut won’t be until the third quarter.
- Chicago Fed President Austan Goolsbee also emphasizes the importance of getting more relevant data.
The policymakers spoke just hours before the Fed’s traditional pre-meeting communications blackout period. The market expected the Fed to keep rates steady at a target of 5.25%–5.50%.
Based on information from official sources, it looks like the rate will remain unchanged in January,’ said Kar Yong Ang, Octa’s financial market analyst. ‘The Fed may start cutting rates in the spring, assuming they have enough data to be confident that inflation has been beaten,’ he added.
Markets still see rates unchanged in January and predict a 48% probability of a rate cut at the next meeting in March, according to the CME FedWatch Tool. Traders should focus most of their attention on the rhetoric accompanying the decision. If Fed Chairman Jerome Powell signals a possible rate cut in March, the US Dollar will likely weaken against all major currencies. USDJPY may decline to the 140.00–142.00 range by the end of this trading week.
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